22. Wizard Company has an old machine that is fully depreciated but has a current salvage value of $10,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are: Increased revenues $120,000 Increased expenses Salary of additional operator $56,000 Supplies 14,000 Depreciation 12,000 Maintenance 8,000 90,000 Increased net income $30,000 (Ignore income taxes in this problem.) Required: 1. What is the payback period on the new equipment? 2. What is the simple rate of return on the new equipment?
22. Wizard Company has an old machine that is fully depreciated but has a current salvage value of $10,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are: Increased revenues $120,000 Increased expenses Salary of additional operator $56,000 Supplies 14,000 Depreciation 12,000 Maintenance 8,000 90,000 Increased net income $30,000 (Ignore income taxes in this problem.) Required: 1. What is the payback period on the new equipment? 2. What is the simple rate of return on the new equipment?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
22.
Wizard Company has an old machine that is fully depreciated but has a current salvage value of $10,000. The company wants to purchase a new machine that would cost $60,000 and have a five-year useful life and zero salvage value. Expected changes in annual revenues and expenses if the new machine is purchased are:
|
Increased revenues |
|
$120,000 |
|
Increased expenses |
|
|
|
Salary of additional operator |
$56,000 |
|
|
Supplies |
14,000 |
|
|
Depreciation |
12,000 |
|
|
Maintenance |
8,000 |
90,000 |
|
Increased net income |
|
$30,000 |
(Ignore income taxes in this problem.)
Required:
1. What is the payback period on the new equipment?
2. What is the simple rate of return on the new equipment?
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